The internet can be a confusing, anxiety-inducing space.
The national news is downright scary (and tragic), and places that used to be the province of baby pictures and goofy status updates are becoming increasingly divided over cultural questions and differences.
But on top of it all, finding good information about how to rightly handle your finances in light of the Trump tax plan is another shaky proposition. There are so many contradictory articles, confusing jargon and “explainer articles” that only leave you scratching your head.
Oh, and then there’s the fact that the IRS STILL hasn’t released full guidance for every component of the plan. Oh yeah, and Congress might change a bunch of it before the end of the year (you might have heard — there are elections coming up).
Which is why we make it our mission to be your port in the storm in Dublin. To provide you personalized recommendations and guidance through the chaos of all of it.
Because the fact is that there are some strategies that, on the face of things, might *seem* like they would be super-smart.
That is, of course, until you dig into the details.
Which is what we do for you.
We’re only a phone call ((844) 835-8600) or an email away. Don’t make this kind of scary mistake…
One Trump Tax Plan Mistake That Mohammed Amir Ghani Wants You To Avoid
“All adventures, especially into new territory, are scary.” – Sally Ride
One of the big changes to come down the pike this year is the limit placed upon how much you can deduct for state and local taxes (the SALT deduction).
As it was before, you could deduct all of your property taxes, and all of your state and local taxes. In most situations, you could deduct almost all of your mortgage interest paid.
This policy was put in place to spark a greater percentage of us to opt for homeownership, because as the value of your house (presumably) went up, you could get the deductions on your interest and property taxes.
But now things have changed.
And this has especially struck those who live in high tax states. California is tops on most lists (depending on how you calculate it, with or without sales tax — this list includes sales tax and has New York as the highest, with CT, NJ and CA not far behind).
But really, if you have a higher income, or a larger mortgage, this is something we should consider for you, because as of 2018 (that would be this year), you can only deduct $10,000 TOTAL in SALT. (There are separate, new caps on mortgage interest as well.)
Some of these states sprung into action by enacting provisions that would allow taxpayers to contribute to charity at a higher level instead of property tax, but the IRS nixed that.
So some “smart” tax professionals that I’ve seen started pushing a different strategy: set up an LLC, put your home under that entity, and then “rent” it from that LLC.
On the face of it, this seemed super smart. You now have a “business”. You can deduct your mortgage interest and property taxes as a business expense. You MIGHT even be able to take the QBI deduction!
But there is a significant catch to this strategy that I’m not sure everyone has thought through.
And this is why it pays to have somebody in your corner who is paying attention to this stuff (so you don’t have to): it keeps you from making a possibly-frightful mistake.
Because in this scenario, if you EVER sell your home, and it has increased in value, you are no longer eligible for the gain exclusion of $500K (if you’re married filing jointly) or $250K (if you’re single).
Now, if you know FOR CERTAIN that your property won’t sell at a gain, or only a negligible one, this might make sense for you. We can help you run those numbers.
Let’s say you’re at the 24% tax bracket (which is for incomes between $82,501 to $157,500 as a single, or $165,001 to $315,000 when filing jointly) and your property tax is $10,000/year. And we’re assuming you sell at a gain, let’s say of $250K. It will take almost 20 YEARS of this strategy for you to have made up the difference that you would lose from the gain exclusion.
If your property taxes are lower, it would take even longer.
The point is this: there is a downside to every tax strategy. And you need to have somebody in your corner in Dublin who is looking at things from every angle to make sure you are making the smartest decision for YOU.
There are ways around many problems. But sometimes following the advice from the “guru of the day” can bite you in the rear. And you could make a frightening mistake.
But remember … we’re in your corner.
Is there anything more that we could do for you, to help?
Until next week,
Mohammed Amir Ghani